TEL2 is a member of the ETS family of transcription factors, which is highly similar to TEL1/ETV6. It binds to DNA via the ETS domain and interacts with itself or TEL1 via the pointed domain. The expression of TEL2 in normal and leukemic hematopoietic cells suggests a role in hematopoietic development. In this article, we describe the role of TEL2 in hematopoietic differentiation and cellular transformation. Quantitative reverse transcription-PCR showed that the expression of TEL2 mRNA was down-regulated during monocytic differentiation of U937 and HL60 induced by 1,25-(OH)2 vitamin D3 and 12-O-tetradecanoylphorbol 13-acetate, respectively. Overexpression of TEL2 in U937 cells inhibited differentiation induced by vitamin D3. In contrast, overexpression of a TEL2 mutant lacking either the pointed domain or a functional ETS domain induced both differentiation of U937 cells and inhibited their growth in vitro and in vivo. In addition, these mutants blocked TEL2-mediated transcriptional repression of a synthetic promoter containing TEL2 binding sites. These data suggest that dominant-negative inhibition of TEL2 might cause differentiation. Quantitative reverse transcription-PCR demonstrated that TEL2 is expressed at higher level in some primary human leukemia samples than in normal bone marrow. Furthermore, overexpression of TEL2 in NIH3T3-UCLA cells blocked the inhibitory effect of TEL1 on Ras-induced cellular transformation. These results suggest that TEL2 may play an important role in hematopoiesis and oncogenesis.